Thinking about Performance
My aging Subaru had a problem a while back. Leak of transmission fluid; a seal or another failing, leading to steady dripping out. And with little need to open the hood, no gauge—or even an “idiot light”—on the dashboard, it dripped for quite a while. And then some.
The first repair—call it Quizzical Effort 1—refilled the fluid, but didn’t find the leak. So we started driving it again, but were a bit more alert for signs that it was doing things such as slipping out of gear or having trouble accelerating from a stop.
We took it to another, better shop for Quizzical Effort 2 (QE2). There they found the leak itself. We spent a bit more money, but the leak is gone and the transmission fluid stays where it belongs.
But it was without fluid for quite a while, and fluids go into other parts of the system, “priming the pump,” as it were, for better operation.
Can we say that my car has made a “recovery”?
The question keeps rearing its “ugly” head as the Jobless Recovery moves forward. Even the Optimists (Mark Thoma, Brad DeLong) are hesitating in the face of the evidence*; Thoma’s graphic at the link just previous notes that the current reovery is not just Jobless, it’s still Job-Reducing, while DeLong tries to dance a line between “this time is different, just like the last one” and “we’re going to turn this into Structural Unemployment Any Day Now” while still thinking of rainbows and kittens.
The strongest evidence that the Recovery has begun is the fiat that NBER declared the recovery to have begun. The second-strongest evidence is that there is noticeable growth in the economy** since the date chosen by NBER.
The following graph appears to support NBER’s declaration. But note the yellow area.
If you want to speak of Business Cycles—I don’t; I consider RBC Theory as its proponents describe it to be the silliness idea this side of phlogiston, but there are those who do, and it’s a convenient fiction for purposes here—then surely you should speak of a full Cycle.
The return to the level of Capacity Utilization at the end of the previous recession comes not as the recession ends, but four quarters later, a year into the “recovery.”***
And that’s just the Capital side of the equation. Labor is rather more complicated.
It is as if the machine is running again, but has not received a proper tune-up, or any other (“structural”) work that needs to return it to peak performance. As John Maudlin noted last May, employment rises with income, and income tax receipts were not rising with the “head-fake” recovery—”grass shoots—of that time.
My Subaru used to get around 17-18 mpg (city). Now it’s closer to 15-16. It would require an investment of capital and labor to get it completely repaired. Being liquidity-constrained, I’m not going to make that investment until a couple of other things are cleared up—including, but not limited to, the possibility of upgrading to a model built in this century.
Similarly, capital recovery is a slow process, and incremental labor tends to follow that in productive industries. The gap in capacity at the beginning of the “recovery” took 12-13 months to be filled. Given that it took 55 months for the Employment/Population Ratio to recover after the 2001 recession (or here), it seems not at all unreasonable to expect the current recovery to take 67 or 68 months.
Which would be around January or February of 2015, just after the midterm elections and therefore nearing the end of the first Palin Administration.
It would be rude of me to note that the first “non-recession” period of the Great Depression lasted only fifty (50) months. Or that there hasn’t been a period of growth so long without tax increases since the Vietnam War.
As with my Subaru, some major investment is needed. Whether there will be the liquidity for that to happen in time is left as an exercise.
*Both, in fairness, have declared the current “recovery” “fragile” (Thoma) or filled with “unforced errors,” but persist in calling it a recovery.
**Let us sidebar that much of that growth is in the FI part of FIRE. If you have assumed that the lion’s share of the profits generated by an economy should go to those who are supposed to intermediate, you have to deal with the structure you’ve got, not one that would produce better, or even optimal, growth.
***The monthly series (MCUMFN; not graphed) reaches and passes the start of the previous recovery in July of 2010. NBER official dates the end of the recession to June of 2009, where Capacity Utilization reached its nadir of 65.2. It is perfectly reasonable to say “a recovery” began then, but a “Business Cycle” that ends with nearly 7% of usable capital (a 9.6% decline in capital terms) sitting vestigial is a poor “Cycle” indeed.
I’m assuming this is a manual tranny? (Because the atx has a dipstick for the fluid, which you would have been checking). You don’t say the year and mileage. But if you haven’t noticed any bearing noises, or troubles with the synchros when changing gear, my guess is that your tranny will probably be OK. They usually outlast the engine (especially with those head gaskets on the Suby 2.5). It could be a good precaution to change the oil for a full synthetic though. Probably cost about $30 for the oil, if you do it yourself (it’s no biggy), and well worth that bit of extra insurance, since a tranny from a wreckers will probably set you back around $1,000 installed. The reduced mpg is probably unrelated. New plugs and wires and air filter would be worth a try.
The economy is simpler. No, it will not make a full recovery for a generation. A lot of semi-permanent damage has been done to human capital.
My 30 year old Mercedes diesel still runs like a tank and gets 22-24mpg with 280k on the odometer. I have owned super reliable Japanese cars, iffy American cars(loved my Jeep). But somethings are just built to last!
Although I am not a keynes economic fan, even Keynes will probably turn over in his grave on how his economic theories are applied today. There is only stimulus never savings… May be the foundations are not built as well in today’s economy.
May be my old Mercedes was build on Austrian economic model…I just don’t know. But one thing I know it will probably stay in the family for another 10-20 years, while I will probably go through 2-3 modern cars at the same time!
Just a thought, the people in power has increased the amount of “corn juice” that is blended into the gasoline, which reduces the mileage one gets, so, if after replacing a tune up, you don’t see an increase, then, like the recovery, it would seem a waste of money. Besides, it would probably be better for the environment if you recycled your old auto, though I don’t know how you recycle all the unemployed, which I might add, grows with each years production of graduates, both from high school & college!
If we extend the automotive analogy further, the economy that we’ve got isn’t even a Subaru, it’a an iffy American model.
i used to be pretty proud of my old mercedes until i realized that my mother’s old chevy was exactly the same age. then i formulated a new theory. people that buy mercedes are the kind of people who change the oil regularly.
does this apply to Keynes… maybe. the “we are all Keynesians now” folk seem to have got the deficit spending part, but they are too goddam dumb to change the oil when needed.
dang, my Subaru used to get 33 / 27, now it’s down to 27 / 25.
How is yours so much lower?